Some sports betting journalists might cause readers to believe that sports arbitrage trading is a riskless investment. On the face of it, and by looking at the basics of sports arbitrage betting it would seem as though there is no risk. But, dig a little deeper and this is not the case.
Differences in how online bookmakers price sports bets often produce opportunities to make risk free profits. A sport arbitrage bet involves either betting on the same selection or the same event with two bookmakers and turning a profit no matter what the outcome is.
It theory, sports arbitrage betting involves finding a sports arbitrage opportunity then placing the bets at the bookmakers. Each bet should produce a profit of between 2 to 4%….. easy.
Not so. It is not easy to find sports arbitrage bets. Not manually. The reason for this is that online bookmakers have been fighting back against sports arbitrage traders. Scanning software is employed to sniff out price inconsistancies. It is not surprising that the pricing anomalies are closed down quickly. The bookmaker who’s odds are out of sync with the rest of the market tend to be those who change the odds first.
Creating an income via sports arbitrage betting is possible. This is what Ben R. Marshall, an associate professor at Massey University, New Zealand, had to say about Arbitrage Opportunities In Sports betting Markets in the Quarterly Review of Economics and Finance, Vol 49, pg 917-930 (2009) –
“I examine arbitrage opportunities in internet sports betting markets. Using a unique data set of 77,435 arbitrage possibilities I show that these opportunities span a range of sporting events including Golf, Major League Baseball, National Basketball Association Basketball, National Hockey League Hockey, Soccer and Tennis. I show that average arbitrage revenues of 3.35% are available. Relatively low transaction costs and the short time horizon of sports bets allow arbitrageurs to reinvest and earn sizeable annual returns… ”
The main risk involved with sports arbitrage betting is execution risk. The process of actually executing arbitrage bets. The execution risk of placing sports arbitrage bets include,
Technological errors with a bookmaker’s website, namely when something goes wrong and the bookmaker will not honour the bet. If one side of the sports arbitrage bet is not registered by the online bookmaker correctly it causes an open liability on the other side of the bet. However, this is certainly not common. This are called palps, short of palpable error. An example would be the bookie advertising the wrong odds 12.0 instead of 1.20.
More common is the bookmaker becoming suspicious of the trader and limiting stake size or find excuses not to honour bets. They do not like people profiting from their mistake. Successful arbitrage traders find ways around these problems.
The trader not being aware of the rules regarding betting on some sports. For example, if a game is called off due to weather or various situations depending on the sport.
Time constraints are one area that can cause a sports arbitrage trades to go wrong. If the odds change during the process of placing a sports arbitrage bet any profit can disapear or a small loss may result. This problem has occured due to the scanning software used by online bookmakers. Such scanning software was originally developed by sports arbitrage trading service providers to help traders find arbitrage bets.
The software developed used by sports arbitrage services has helped bookmakers clamp down of sports arbitrage trading. The sports arbitrage betting service providers have responded by either using humans to hand pick quality bets or have started using real time data. The arbitrage software can find sports arbitrage bets quickly providing a large enough window of opportunity to execute profitable trades.
In summary, any sports arbitrage betting is not a riskless investment. The risks involved with sports arbitrage betting can be managed by preparation and using the correct tools. Errors with online betting terminals are rare. Problems with sports betting rules can be avioded by doing some home work. Sports arbitrage services can help by speeding up detection and excution of trades. Some providers also help notify the user of any changes to the betting rule book.